Housing starts declined 4.3 percent to a seasonally adjusted annual rate of 529,000 units in December, according to a report released Wednesday, Jan. 19 by the U.S. Commerce Department.

While this was the slowest pace of starts activity since October 2009, the year-end data indicate that production of new homes improved 6.1 percent in 2010 from the previous year, noted a spokesman from the National Association of Home Builders (NAHB). On another positive note, permit issuance for construction of new homes and apartments rose 16.7 percent in December to a rate of 635,000 units, the strongest pace since March of 2010.

This good news on the permits front -- usually a leading indicator of future activity -- however, is not generated by optimism but rather by what one commentator called a reaction to expanded government regulation in building codes, with builders pulling permits as insurance, not that they will actually build the houses. There still is a huge supply of unsold houses to dispose of.

"The latest government report indicates that builders are preparing for an anticipated improvement in buyer demand in the spring buying season by pulling more permits in hopes of soon replenishing the very tight inventory of new homes for sale," said Bob Nielsen, chairman of the NAHB and a home builder from Reno, Nev. "That said, it remains to be seen if the availability of financing for new construction and existing viable projects will improve in order to make building feasible and facilitate a housing and economic recovery."

"Today's report is consistent with what home builders have been telling us in our recent surveys," said NAHB Chief Economist David Crowe. "While builders remain extremely cautious about new construction at this time, they are looking forward to putting their employees back to work as economic conditions improve over the new year – assuming they can obtain the necessary financing for new-home production. To date, however, any improvement in the market for acquisition, development and construction lending has been minimal at best."

Crowe also noted that December's permit numbers may have received a partial boost due to building code changes that were expected to go into effect in several states this January.

The 4.3 percent decline in December housing starts was due entirely to a 9.0 percent shortfall on the single-family side, where housing production fell to a seasonally adjusted annual rate of 417,000 units. Meanwhile, multifamily housing starts, which tend to display greater volatility on a month-to-month basis, rose 17.9 percent to a 112,000-unit rate.

Regionally, the West was the bright spot in the housing starts report for December, posting a 45.8 percent rebound from an exceptionally slow period in the previous two months. Meanwhile, the Northeast, Midwest and South posted declines, of 24.7 percent, 38.4 percent and 2.2 percent, respectively.

Building permits, which can be an indicator of future building activity, rose 16.7 percent in December on gains in both the single- and multifamily sectors. Single-family permits rose 5.5 percent to a 440,000-unit rate, their best pace since April of 2010, while multifamily permits rose 53.5 percent to 195,000 units, their best pace since January of 2009.

Permits rose by substantial margins in three out of four regions in December, with gains of 80.6 percent, 3.3 percent, and 43.9 percent recorded in the Northeast, Midwest and West, respectively. The South was the only region to post a decline in building permits, of 7.6 percent.